Business Succession Planning
If you are a key person in your business then you need to think about what would happen if you weren’t there. The key is to ensure that someone is going to be able to operate your business and financial affairs without you there. In some cases it can be very difficult to deal with a business where the owner dies and there are no clearly documented processes and succession plans set out.
What is a business succession plan?
A succession plan would set out some answers to some of the following:
- Who operates the bank account?
- Who pays the bills?
- Who prepares the rosters and orders the supplies?
- Who has login details?
- Who issues invoices?
What happens to a business and assets when the owner dies?
This depends on a number of things. If the business is run by a company then technically the company continues to exist, unchanged. The deceased will have been a director and shareholder of the company. If that is the case the shareholder will need to be changed. Shares are an asset of the estate and will pass in accordance with the will. A directorship will cease and a new director will need to be appointed by the shareholders of the company. If the shares in the company were held by the deceased then the executor will need to transfer those shares into the name of the executor in the first instance. Once the estate takes control it might either wind the company up, or, perhaps distribute the shares as part of the estate.
Even if the business was a sole trader business, the business can continue. The obligations (wages, contracts, rental and lease arrangements etc) will all continue and would be obligations of the estate. Equally accounts due to the business are still payable and would now be due to the estate.
Selling a business after the owner dies
Selling a business can be complicated because often the most significant asset is goodwill. And goodwill can disappear quickly if a business stops trading.
There can be some difficulties for an executor in selling a business if the purchaser requires details from the executor that the executor might not know. This might have an impact on the price.
To sell a business the executor will need to have probate. Once probate is granted, the executor will decide how to sell the business. The process will depend on the business and how possible purchasers can best be identified. Often the purchaser will be known – perhaps an existing employee or family member. But if the business is to be sold on the market, a business broker might be needed.
Do you need a lawyer?
This is not really a legal issue so you don’t have to use a lawyer, but a lawyer or accountant might help. It really is more of a practical matter.
It can be as simple as setting out bank details, computer passwords and explaining business processes. Depending on the business however, this might get very detailed.
If you would like help setting out your business succession plan, search our directory for estate planning lawyers and accountants in New Zealand.